How the Federal Tax Credit Works for Solar Owners

When purchasing a solar electric system, you could potentially save up to 30% with the federal solar tax credit.

When most consumers set out to do research about solar panels, they will eventually come across the Residential Renewable Energy Tax Credit also known as the Federal Investment Tax Credit (ITC). This tax credit allows you to claim up to 30% of the price you pay to install solar panels, which discounts the cost going solar significantly. The credit has no limit and will be available through December 31, 2019 and stepped down thereafter.

Admittedly, the solar tax incentive is confusing, and many of our customers have questions about it. While AMECO Solar is not licensed to give tax advice, and we recommend that you consult with a tax professional on all tax matters, we hope that by explaining the basics of the solar tax credit you will have a better understanding of how it will work for you when you are ready to purchase a solar system.

Many people are led to believe that they will receive a check from the federal government after they file their taxes, similar to how typical rebate works when purchasing a product. However, this is not true! The tax incentive is a credit, meaning that when you file your Federal taxes you can claim 30% of the qualified expenditures of your solar system.* If you owe Federal taxes that year, then the credit can be applied and you will either A) owe less, B) owe nothing, C) owe nothing and have a credit left over.

Let’s look at these situations in greater detail. To guide our sample scenarios, we’ll imagine that Joe Solar paid a total of $25,000 for the installation of his solar electric system on his home’s rooftop. This amount qualifies him for a $7,500 Federal tax credit.

In Scenario A (where he would owe less) April arrives, he files his taxes and claims the 30% solar tax credit. It turns out he owes $10,000 in taxes, so the entire $7,500 is applied and he writes check to Uncle Sam for the remaining $2,500 that he owes.

For Scenario B (where he would owe nothing) Joe went to his employer and told him that he would be getting a $7,500 tax credit for the year. The employer adjusted Joe’s withholdings on his pay check so that he took home more money and would owe $7,500 to the IRS in April. In April, Joe applies the $7,500 tax credit to his $7,500 tax bill and owes nothing.

For Scenario C (where he would owe nothing and have a leftover credit), we find out that Joe only owes $1,200 in taxes. His tax credit covers this $1,200 amount that he owes and then the remaining $6,300 tax credit will roll over to any succeeding taxable years through 2016. It may be possible to roll any remaining tax credit past 2016, but it’s not entirely clear as reported by DSIRE.

While most people qualify for the solar tax incentive, there are some that do not qualify. Anyone who does not owe taxes will not be able to benefit from the tax credit. Also, it does not apply for solar installations on rental properties. That said, anyone who installs solar panels on an existing home, new construction or second residence will be able to utilize the solar tax credit.

While you’re in the process of purchasing a solar system, AMECO Solar suggests you consult your accountant or tax professional to figure out the specifics on how to approach the solar tax credit in your specific situation. While we are definitely experts in all things solar, we can’t necessarily claim the same with filing taxes.

If you are interested in a solar installation for your residence or business and would like to see how much you can save with the federal solar tax incentive, contact us at (888) 595-9570 or gosolar@amecosolar.com.

* Typically, “quality expenditures” include the cost of the solar products (panels, inverters, hardware, etc), installation labor and any permitting fees associated with the job. In some cases, you may be able to claim the cost of any re-roofing or electricity work done in conjunction with the solar installation.